Italy's GDP to drop 1.5% in 2012

ROME - An Italian national statistics agency on Tuesday forecast that Italy's GDP would fall by 1.5 percent this year but would slightly rise by 0.5 percent in 2013.

Italy's GDP is expected to fall by 1.5 percent in real terms this year as a result of "a reduction in domestic demand which is only partially offset by the positive contribution of external demand," said a report issued by Italian National Institute of Statistics (Istat).

Istat said that total investment is forecast to drop substantially owing to tighter credit conditions and negative economic sentiment, while the import growth would turn strongly negative in 2012.

Private consumption is also projected to fall, according to the report, reflecting a decline in households' purchasing power and rising unemployment. At the end of 2012, Italy's unemployment rate would be at 9.5 percent, up from 8.4 percent of last year

In 2013, Italy's GDP would see a growth of 0.5 percent as stronger global trade sustains export growth, according to the institute. In the meantime, with private consumption and investment remaining weak, domestic demand's contribution to output growth is estimated to be negligible.

However, Istat said the outlook is subject to a number of downward risks. "A revival of financial tensions, widening sovereign credit risk spreads and a slower-than-expected global trade recovery could lower GDP growth significantly," said the report.